Retailers to sue Lottery over system switch

The association representing the state's video lottery retailers plans to sue the West Virginia Lottery over a looming upgrade to the lottery's software system that could cost retailers millions of dollars.

The West Virginia Amusement and Limited Video Lottery Association on Tuesday sent a notice to state officials of its plans to sue over the matter.

The looming lawsuit stems from a conflict that's been brewing for more than a year between video lottery retailers and the state.

In late 2012, video lottery manufacturer International Game Technology informed the Lottery that it planned to discontinue one of two computer communications protocols that operate on its video lottery machines.

At the time, the outdated protocol, called ISIS, was still used on more than 90 percent of the 6,872 IGT video lottery terminals located in bars, gambling parlors and other private clubs around the state.

The company said those machines would either have to upgrade to newer software or be replaced with brand new machines, which cost $15,000 to $20,000 each.

While upgrading current machines requires only a software change, retailers said it would come at a hefty price.

Last year, video lottery association lobbyist George Carenbauer estimated the total costs of the upgrade could reach $25 million to $30 million.

For perspective, video lottery retailers log about $30 million worth of transactions each month.

In the notice of intent to sue, association attorney William Brewer said the retailers had no idea the change would be coming when they put up nearly $70 million to bid on their 10-year operating licenses more nearly three years ago.

The average bid per machine was $9,200. Retailers are now being told they would need to spend about $3,000 per machine to upgrade to the new system.

"These West Virginia businesses would not have bid for as many permits or paid nearly as much for a permit if they thought that existing terminals would be made obsolete before the end of the permit period," association president Herk Sparachane said in a statement.

"Many of our members feel like they have been subjected to a classic 'bait and switch,'" he said.

IGT originally wanted to end the ISIS protocol in late 2015, but Musgrave negotiated a deal early last year to push that back to Dec. 31, 2017. He said that would give retailers nearly five years to financially prepare for the switch.

Lottery retailers, however, say they do not like the idea of paying additional money to Nevada-based IGT to convert the machines. They wanted the Lottery to delay the switch to 2021, when the current video lottery bids expire.

"The net result of the director's actions is to force West Virginia's limited video lottery permit holders to pay tens of millions of dollars to Nevada corporation whose annual revenue is more than 10 times those of all limited video lottery operators and retailers in West Virginia combined," Brewer said in his letter.

State law requires individuals who plan to sue the state to file a notice of intent at least 30 days before filing suit.

Brewer said the association plans to ask the court to either delay the switch to the new system until 2021 or require the state pick up the tab for upgrading the existing machines. The notice also said the association would pursue monetary damages as compensation for the Lottery's actions.

A West Virginia Lottery representative did not immediately respond to a request for comment late Wednesday evening.